TECHNOLOGY

Forget bitcoin, blockchain technology is much bigger

16 February 2018

Blockchain, the technology underpinning cryptocurrencies, is set to transform society and the economy even more profoundly than the internet has, argues Alex Sims.

In late 2017, the world's attention was caught by a meteoric rise in the price of bitcoin, the best known of the so-called cryptocurrencies. Having lingered at next to nothing for years, the value of a single bitcoin soared from under US$1000 at the start of 2017 to briefly peak at a dizzying US$19,000 in mid-December.

Bitcoin's volatility prompted comparisons with history's most notorious speculative bubble, the 17th century 'tulip mania', which saw prices for bulbs of the fashionable plant skyrocket to unimaginable heights before suddenly crashing. And reports on the alarming amount of electricity needed to 'mine' bitcoins – more than entire countries consume – kept the currency in the news.

"By contrast, comparatively few people have heard of blockchain technology. Yet blockchain promises to change society and the economy even more profoundly than the internet", says Associate Professor Alex Sims, of the Business School's Department of Commercial Law.

She says most people have already encountered blockchains, which act as distributed electronic ledgers, without realising it. Bitcoin operates on a blockchain – actually, it created the first one – and just as there are hundreds of other cryptocurrencies, so there are hundreds of blockchains.

Blockchain technology, can do two things, says Sims: it can make existing process more efficient, and it can disrupt industries.

"Take aid sent to third-world countries. Currently, not all aid reaches the right people, due to corruption. Blockchain can solve this by using radical transparency, so that the money can be traced the entire way."

Alternatively, she says, the actual charity can be done away with. For example, if someone wants to donate to people affected by earthquakes, a self-executing computer program known as a smart contract could be written that takes information from internet searches, Twitter, and reputable news providers. When the program detects that an earthquake of a certain magnitude had occurred, it could automatically make payments to those living in the area.

In another example, a container of manuka honey exported to Europe could be fitted with an Internet-of-Things device so that once the shipment reached its destination port the agreed payment would be made automatically. Better yet, the payment could be split between the supplier, the beekeeper, the shipping company, Inland Revenue, and others. Moreover, the Ministry for Primary Industries could be granted permission to see into such blockchains, allowing it to monitor exports and imports in real time.

"For individuals, blockchains can enhance our privacy. Instead of our personal health information being held by doctors, insurance companies, and the like, blockchains allow individuals to keep such information and grant access to others to view it."

Sims says that for businesses too, encryption can ensure that only trusted third parties are able to see sensitive information. For example, IBM is now trialling an open source permission blockchain called Hyperledger Fabric for many of its clients, including New Zealand currency exchange service KlickEx.

"Distributed ledger technology is still very much in its infancy, and its potential impact is hard to overstate. I have yet to come across an industry that could not potentially use it in some way."

Associate Professor Alex Sims is leading a project investigating the regulation of cryptocurrencies, funded by the New Zealand Law Foundation.

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